Z94.7 ENGINEERING ECONOMY

INCREMENT COST (INCREMENTAL COST). The additional (or direct) cost which will be incurred as the result of increasing output by one unit more. Conversely, it may be defined as the cost which will not be incurred if the output is reduced by one unit. (2) The variation in output resulting from a unit change in input. (3) The difference in costs between a pair of mutually exclusive alternatives.

INDIRECT COST. Nontraceable or common costs which are not charged against specific products, operations, or services but rather are allocated against all (or some group of) products, operations, and/or services by a predetermined formula.

INFLATING (BY A PRICE INDEX). The adjustment of a present or base year price by a price index in order to obtain an estimate of the current (or then current) price at future points in time. (See DEFLATING, CONSTANT DOLLARS, ACTUAL DOLLARS) (CURRENT DOLLARS.)

INFLATION. A persistent rise in price levels, generally not justified by increased productivity, and usually resulting in a decline in purchasing power. Sometimes the term is used interchangeably with escalation. However, this latter term more often is restricted to the differential increase in a price relative to some specific index of general changes in price levels. (See DEFLATION.)

INTANGIBLES. (1) In economy studies, those elements, conditions or economic factors which cannot be evaluated readily or accurately in monetary terms. (2) In accounting, the assets of an enterprise which cannot reliably be values in monetary terms (e.g., goodwill). (See IRREDUCIBLES.)

INTEREST. (1) The monetary return or other expectation which is necessary to divert money away from consumption and into long term investment. (2) The cost of the use of capital. It is synonymous with the term time value of money. (3) In accounting and finance, a) a financial share in a project or enterprise; b) periodic compensation for the lending of money.

INTEREST RATE. The ratio of the interest accrued in a given period of time to the amount owed or invested at the start of that period.

INTEREST RATE, EFFECTIVE. The actual interest rate for one specified period of time. Frequently the term is used to differentiate between nominal annual interest rates and actual annual interest rates when there is more than one compounding period in a year.

INTEREST RATE, MARKET. The rate of interest quoted in the market place which includes the combined effects of the earning value of capital, the availability of funds, and anticipated inflation or deflation.

INTEREST RATE, NOMINAL. (1) The interest rate for some period of time which ignores the compounding effect of interest calculations during subperiods within that period. (2) The annual interest rate, or Annual Percentage Rate (APR), frequently quoted in the media.

INTEREST RATE, REAL. An estimate of the true earning rate of money when other factors, especially inflation, affecting the market rate have been removed.

INTERNAL RATE OF RETURN. A rate of return calculation which takes into account only the cash receipts and disbursements generated by an investment, their timing, and the time value of money. (See RATE OF RETURN, DISCOUNTED CASH FLOW, EXTERNAL RATE OF RETURN.)

INVESTMENT. (1) As applied to an enterprise as a whole, the cost (or present value) of all the properties and funds necessary to establish and maintain the enterprise as a going concern. The capital tied up in an enterprise or project. (2) Any expenditure which has substantial and enduring value (generally more than one year) and which is therefore capitalized. (See FIRST COST.)

INVESTOR’S METHOD. A term most often used in the valuation of bonds. (See RATE OF RETURN, INTERNAL RATE OF RETURN, DISCOUNTED CASH FLOW.)